[Note: WhiteWave CEO Gregg Engles, mentioned in the story, was the CEO of Dean Foods, the giant dairy processor that spun off WhiteWave earlier in 2013.]
By Ari LeVaux
WhiteWave, maker of Silk soymilk, is purchasing San Juan Bautisa-based Earthbound Farm, the nation’s largest producer of organic produce. Organic industry observers are wondering what the fallout of this consolidation, announced Dec. 9, will be. For WhiteWave CEO Gregg Engles, the road ahead is clear.
“With Horizon Organic and Earthbound Farm, WhiteWave will now provide the two most popular gateways for consumers to enter into the organic category – produce and dairy,” he says.
The purchase comes barely a year since the initial public offering of WhiteWave stock, after it was spun off from its parent company, Dean Foods. Dean Foods had only purchased WhiteWave three years earlier, a move that resulted in a downgrade of its products from certified organic to the less meaningful “natural” label.
Earthbound Farm, which started in 1984 with a rented raspberry patch and farm stand on Carmel Valley Road, went on to transform the way America eats salad – today it controls 60 percent of the bagged organic salad market, which it helped pioneer. Along the way, Myra Goodman, who started the company with her husband Drew, has used her stature to further the cause of clean, fresh food. The first recipe in her first cookbook is for raspberry corn muffins she used to sell at the farm stand. The Goodmans’ success, from such humble roots with such good intentions, sounds like a foodie fairy tale.
But some are forecasting dark clouds over the buyout, as it invokes the specter of Dean Foods, the nation’s largest dairy. Soon after purchasing WhiteWave, American organic soybean growers, who had been supplying Silk’s primary raw material, were told they had to meet the price of Chinese organic soy. Organic soy is labor-intensive, American farmers couldn’t go that low, so Silk began sourcing from China. After the company amassed a commanding share of the organic soy milk market, Silk switched its supply again, back to the U.S., but to conventional soybeans. New product offerings from Silk were not organic.
WhiteWave was, by this time, a division of Dean Foods, and another Dean Food holding, Horizon Organic Dairy, was transferred to WhiteWave. Horizon is the largest organic dairy in the nation, and the largest organic brand, period.
Dean Foods had a hand in building the company, and similar principles and practices were used to those that made Dean Foods the nation’s largest dairy: gobbling up smaller dairies. In the case of the Horizon, many of these small dairies saw their core organic principles get tossed.
One-time Horizon supplier, Aurora dairy, has had a long history of complaints. In 2007 Aurora was found by U.S. Department of Agriculture investigators to have willfully committed 14 violations – some with multiple instances – of federal organic standards. Aurora faces 19 class action and consumer fraud lawsuits in federal court, according to Cornucopia Institute, an organic watchdog group.
Cornucopia co-director Mark Kastel fears that with the purchase of Earthbound, WhiteWave is gaining undue influence. “This new acquisition even gives corporate lobbyists at the former Dean Foods/WhiteWave a direct conduit to the National Organic Standards Board via John Foster, an employee of Earthbound and NOSB member,” he says.
WhiteWave says it plans to run Earthbound as a separate unit, with no significant operational changes, and has expressed interest in keeping Myra and Drew Goodman as advisors. Similar promises were made to WhiteWave/Silk founder Steve Demos. He told Bullfrog Films, “Dean Foods said ‘We agree you have a culture, and we agree with the principles.’ That’s how I stayed after its acquisition. I was told one week I was doing a brilliant job and everything was working great, and the next week, ‘You’re not the right person for this job.’”
It isn’t clear at this point that the Goodmans want to stay on. And why would they, after pocketing an estimated $60 million from the $600 million sale? The process of selling out began in 2010 with a barely-reported deal with Dallas-based HM Capital Partners, now known as Kainos Capital, which owns 80 percent of Earthbound Farm. Private equity firms are often contracted to orchestrate a public stock offering, to allow owners to cash out, or to pursue strategic expansion. In this case, HMCP orchestrated a buyout.
Myra started the company with her bare hands because babysitting didn’t pay enough to put herself through grad school. Her cookbooks are loved and respected, and solidify her cred as a sincere player in the organic movement. She’s earned the right to wash her hands now. But is her company going to be whitewashed in the process?
Cornucopia’s Kastrel is afraid it will. In an email he writes WhiteWave, “has a long record as a bad actor in its treatment of family farmers, both conventional and organic, and taking advantage of the goodwill of organic consumers. [Its] acquisition of another industrial-scale organic agribusiness further consolidates power in the marketplace.”
Samantha Cabaluna, vice president of communication with Earthbound, doesn’t think the company’s sale will mean much will change. “Absolutely not,” she says. “WhiteWave was interested in the purchase because they like what we do and want to expand on that.”